Melbourne, 8 March 2013: Investments by Chinese
interests in Australian energy and resources have increased more
than tenfold since 2005, with the typical Chinese investor being a
state owned enterprise, investments targeted at projects at the
development stage rather than at the exploration or production
stage, acquisitions mainly of a passive minority interest at the
corporate level, and investors relying on Australian management to
manage their investments.

These are some of the key findings of a new Clayton Utz report,
Digging Deep: Chinese investment in Australian energy and
resources, which examines the $101 billion in investments into
the industry by Chinese investors over an eight-year period from 1
January 2005 to 31 December 2012.

The report examines the sectors Chinese investors targeted, the
value and number of investments, the stage of the projects and the
level at which they invested in (corporate level, assets level or
both), the rate of successful completion associated with the
various entry strategies, whether management and board control were
sought, and the application of the Foreign Investment Review Board
(FIRB) regime.

An initiative of Clayton Utz Melbourne Corporate partner Jonathan
Li, who has acted for companies on more than $10 billion of
these investments in the past five years, Digging Deep is the
result of in-depth analysis by Mr Li and his team, particularly
lawyer Yasmin Hogan, to uncover some of the lesser known facts and
trends in respect of Chinese investment in Australian energy and
resources.

"We wanted to get a clearer picture not just of investment
activity but of the entry strategies of Chinese investors as well
as target commodities and approach to management," said Mr
Li.

"We found, for example, that the preferred investment
method was the acquisition of strategic stakes in companies, with
65 per cent of the total number of investments during the period
for an acquisition of shares at the corporate level. Only in 23 per
cent of investments was the preferred investment an acquisition of
an interest in a project or an asset. We also found that investors
relied heavily on local Australian management expertise rather than
bringing in their own management in the vast majority of
cases."

The findings also reveal that Chinese interests in iron ore have
waned since peaking in 2009. The three sectors that experienced
intense interest in the three years to the end of 2012 were oil and
gas, uranium and gold.

"The gold rush of the 1850s continues to the present day,
with 97 per cent of investments by value in the gold sector made
during the eight-year period announced in the two years to the end
of 2012," said Mr Li. "The energy sectors of oil and gas
and uranium similarly experienced intense interest from Chinese
investors, with each sector recording 94 per cent of all
investments made in its sector in the three-year period to the end
of 2012."

Chinese investment activity also peaked during the global
financial crisis, due both to financial pressure on Australian
energy and resources companies as well as stimulatory measures by
the Chinese government. "During the GFC, the value and number
of investments by Chinese investors reached peak levels, with $19.7
billion of announced investments in 2008 of which 96 per cent
successfully completed. This is from a total of $100.7 billion
announced investments since 2005, of which $50.4 billion have
completed."

Mr Li said an analysis of investment activity also countered a
common perception in Australia that China was "buying the
farm". "FIRB has formally intervened in respect of 9 per
cent of Chinese investments in energy and resources since 2005, and
only three were rejected outright," he said. "However,
the total value of completed investments since 2005 represents
approximately 10 per cent of the total market capitalisation of the
top 100 companies in each of the metals and mining and energy and
utilities sectors on the ASX as at 31 December 2012," he said.
"Considering that many of Australia's most valuable
resources projects are owned by companies not listed on the ASX,
the value of completed Chinese investments would likely amount to
considerably less than 10 per cent of the total value of
Australia's energy and resources projects. This can hardly be
said to be "selling the farm", especially considering
that China is Australia's largest customer in respect of raw
materials."

Commenting on the impact on investment activity of the
increasing urbanisation of China, Mr Li said: "For as long as
the macro themes of urbanisation and GDP per capital growth in
China continue, China will remain a country dependent on importing
raw materials to fuel its economic growth. This has already
resulted in large increases in investments in Australia energy and
resources over the past eight years. Australia may increasingly be
facing competition for the Chinese yuan from other resource rich
countries but Australia still offers four key attractions: high
quality resources, quality management, the rule of law and a
strategic location. For so long as these macro themes continue in
China, Chinese interest in Australian energy and resources will no
doubt continue."

Some comments from our readers…“The articles are extremely timely and highly applicable”“I often find critical information not available elsewhere”“As in-house counsel, Mondaq’s service is of great value”